Is Neotel for sale?

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The telecoms industry has been abuzz with rumours for months that Neotel was on the market, but the nature of such sales is mostly speculation.

The questions are usually: Is it really for sale? Who can afford to buy it Who should buy it (for the sake of competition and consumers)? How much meddling will the clueless department of mis-communications do?

The suitors are big cellphone networks Vodacom and MTN. Dimension Data’s Internet Solutions division has, according to rumour, withdrawn from the running. Smaller operators like Cell C don’t have the cash and it is unlikely that other Internet service providers (ISPs) such as Vox Telecom have the strategic wherewithal and cash reserves for it.

Perhaps the best scenario might be MWeb buying it and creating a cable TV company like the big US or UK operators, which provide a triple-play of services – phone line, broadband and TV. But as enticing as that is to consumers, the competition authorities are unlikely to give it the green light.

Neotel was meant to bring competition to SA’s staid, monopoly-dominated telecom landscape. Instead, it was tied up in legal wrangles. Its own complicated shareholding and the unhealthy protectionism afforded Telkom by the late communications minister Ivy Matsepe-Casaburri kept Neotel from ever getting a decent foothold.

Neotel was a political football before it even started trading. Cast your mind back to the enthusiasm about the second network operator (SNO) when it was first suggested in the late 1990s. It was meant to be operational by the time Telkom’s government-granted five-year exclusivity expired in 2001.

Telkom had the option to apply for a further year but didn’t, and didn’t have to, as it was mandated to provide more telephone lines, especially in rural areas. In its most recent results, Telkom admitted its landline numbers are the lowest they have ever been – and promptly raised line rental prices.

Years of cash-flow burning, network building and fighting Telkom – a master of tying up competitors and the regulator in seemingly unending legal battles – made Neotel an also-ran and an industry joke. But the “no SNO for Christmas” headlines would be recycled for a few more years. First, one of the original bidders sued the successful bidder, then both ended up in the consortium. The 15% stakes for Eskom and Transnet muddied the waters further with fears of similar ministerial interference to that which kept Telkom from becoming a world-class player.

When Neotel launched in 2006, it was like Os du Randt trying to race against Usain Bolt, while carrying the rest of the Springbok pack on his back. Neotel had to make peace with its warring shareholders and try to take on an established monopoly with legislatively protected access to the last mile. Where once there was grand potential of real competition against Telkom’s monopoly on landlines and wired broadband, Neotel has simply failed to live up to expectations.

These environmental and structural problems are further complicated when combined with its majority shareholding via India’s Tata Communications, which is the major shareholder in the Seacom undersea cable and whose focus on providing retail telecom services appears to have changed.

The cellular operators have provided the competition once expected of the ill-fated SNO, albeit at unforgivably high prices. The profiteering of SA telecom companies has perhaps reached the end of its golden age, but the journey, as Neotel shows, has been littered with expensive failures, muddled government strategy and fleeced consumers. No SNO for Christmas this year either.

This column first appeared on Financial Mail.

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